Chapter 8 Practice Problems
BU 310 Finance 1
1. Monte Cristo Corp is considering a new project. They will invest $1,850,000 into French
real estate, and expect to earn $425,000 per year for the next eight years.
a. Using the payback rule, should Monte Cristo Corp accept the project if the
payback limit is 4.25 years?
b. If the required return for this project is 12%, what is the NPV of the project?
Should they accept the project according to the NPV rule?
2. The finance officer first mate at Irate Pirate Co. loves rates for analyzing projects. The
company is considering purchasing a fleet of galleons to go raiding along the Spanish
Main. Irate Pirate Co. would need to invest half a million pieces of eight,
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but expects to
earn 222,222, 123,456, 122,333, and 159,753 pieces of eight in each of the next four
years, respectively.
a. What is the IRR of this project? Should Irate Pirate Co. accept the project if the
